<p class="is-style-lead">For the 14th consecutive month, the total <a href="https://crypto.news/glossary/market-cap-in-crypto/">market cap</a> of <a href="https://crypto.news/stablecoins-why-they-may-be-better-than-altcoins/">stablecoins</a> continues to <a href="https://www.coindesk.com/markets/2023/05/24/stablecoin-market-shrinks-for-14th-straight-month-posing-potential-headwinds-for-crypto-prices/?outputType=amp" target="_blank" rel="noopener">shrink</a>, standing at a modest $130 billion in May – a startlingly low point unseen since September 2021. But, as their numbers dwindle, the crypto market faces a potential headwind.</p>



<p>Financial giants such as JPMorgan and Goldman Sachs have voiced concerns that a sustained recovery in cryptocurrency prices may not materialize until the stablecoin market stabilizes. This shrinkage is seen as a sort of &#8216;quantitative tightening&#8217; for the crypto market, indicating declining liquidity and leverage.</p>



<p>In this exploration, we navigate the troubled waters of the crypto market, focusing on the shrinking stablecoin market and its impact on crypto prices. Unpack the implications of this 14-month contraction and a glimpse into potential future repercussions.</p>



<h2 class="wp-block-heading" id="deepening-crisis-trading-volume-plummets">Deepening crisis: trading volume plummets</h2>



<p>A worrying sign accompanying this steady decrease is the plunging trading volume with stablecoins, which has fallen by 40.6% this month, hitting $460 billion &#8211; the lowest since December 2022.&nbsp;</p>



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<p>This drop comes as significant crypto assets grapple with range-bound activity and fail to break critical support and resistance levels.</p>



<p>Amid the widespread slump, trueUSD (<a href="https://crypto.news/price/trueusd/">TUSD</a>) stablecoin has emerged as an unexpected beacon, recording an increase in <a href="https://crypto.news/glossary/volume-in-crypto-trading/">trading volume</a> to $29 billion.&nbsp;</p>



<p>Outperforming competitors like USD coin (<a href="https://crypto.news/price/usd-coin/">USDC</a>) and Binance USD (<a href="https://crypto.news/busd-reserves-crumble-amid-binance-regulatory-saga/">BUSD</a>), TUSD has become the second most traded stablecoin on centralized exchanges for the first time. This resurgence can be attributed to <a href="https://crypto.news/exchanges/binance/">Binance</a>, the world&#8217;s dominant crypto exchange, actively promoting TUSD usage by waiving trading fees.</p>



<h2 class="wp-block-heading" id="strong-tether-vs-usdc-a-tale-of-two-stablecoins-strong"><strong>Tether vs. USDC: a tale of two stablecoins</strong></h2>



<p>The dynamics between two primary stablecoins, tether (<a href="https://crypto.news/price/tether/">USDT</a>) and USDC, underpin the intricacies of the broader crypto landscape.&nbsp;</p>



<p>Despite concerns surrounding trading volumes, USDT, the leading player in the stablecoin realm, has steadily grown its market cap. </p>



<figure class="wp-block-image size-full"><img decoding="async" loading="lazy" width="854" height="787" src="https://crypto.news/app/uploads/2023/05/image-70.png" alt="Stablecoins&#039; future becomes uncertain amid crypto slump - 1" class="wp-image-14161398"></figure>



<p>As of May 25, tether&#8217;s market cap stood at a remarkable $83 billion, nearing its historical peak. This figure indicates a sizable rise from the $65 billion mark it held in September 2021.&nbsp;</p>



<figure class="wp-block-image size-full"><img decoding="async" loading="lazy" width="813" height="570" src="https://crypto.news/app/uploads/2023/05/image-68.png" alt="Stablecoins&#039; future becomes uncertain amid crypto slump - 2" class="wp-image-14161396"><figcaption class="wp-element-caption">USDT lifetime market cap chart | Source: <a href="https://coinmarketcap.com/currencies/tether/" target="_blank" rel="noopener">CoinMarketCap</a></figcaption></figure>



<p>However, this growth raises some uncertainties, given the stagnant trading volume &#8211; an unsettling observation since the primary function of stablecoins is transactional.</p>



<p>On the flip side, USDC, the stablecoin brainchild of Circle and Coinbase, has experienced a more turbulent journey.&nbsp;</p>



<p>In April 2022, USDC boasted a peak market cap of $55 billion. But since then, it has experienced a considerable downturn, currently valued at $24 billion as of May 2023.&nbsp;</p>



<figure class="wp-block-image size-full"><img decoding="async" loading="lazy" width="813" height="570" src="https://crypto.news/app/uploads/2023/05/image-69.png" alt="Stablecoins&#039; future becomes uncertain amid crypto slump - 3" class="wp-image-14161397"><figcaption class="wp-element-caption">USDC lifetime market cap chart | Source: <a href="https://coinmarketcap.com/currencies/usd-coin/" target="_blank" rel="noopener">CoinMarketCap</a></figcaption></figure>



<p>This reduction, amounting to a more than 50% drop over the year, transpired amidst the multibillion-dollar collapse of the <a href="https://crypto.news/terra-founder-gets-bail-institutional-adoption-surges-regulatory-efforts-endure-weekly-recap/">Terra</a> ecosystem.</p>



<p>One plausible factor contributing to USDC&#8217;s decline could be the amplified regulatory scrutiny faced by <a href="https://crypto.news/circle-rebalances-treasury-holdings-amid-us-debt-default-concerns/">Circle</a> in the past year.&nbsp;</p>



<p>Circle&#8217;s commitment to morphing into a full-reserve national digital currency bank has intensified <a href="https://crypto.news/crypto-community-reacts-to-secs-regulatory-crackdown-on-coinbase-insights-from-metalawman/">regulatory</a> oversight. This development may have prompted some users to gravitate towards less regulated stablecoins, like tether, potentially explaining its sustained dominance.</p>



<h2 class="wp-block-heading" id="strong-the-road-ahead-strong"><strong>The road ahead</strong></h2>



<p>The contraction of the stablecoin universe suggests that the crypto recovery could be less sustainable than optimists suggest.&nbsp;</p>



<p>Despite impressive gains earlier in the year, bitcoin and ethereum have seen a significant decline from their peaks, impacted by increased regulatory scrutiny and market uncertainty. These price fluctuations exemplify the inherent interdependence between cryptos and stablecoins.</p>



<p>Moreover, as the US navigates a <a href="https://crypto.news/president-biden-sets-sights-on-crypto-amidst-us-debt-crisis/">debt-ceiling</a> impasse, the reserves of major stablecoins, mainly consisting of Treasury securities, could face significant challenges maintaining their pegs in an adverse scenario of a US technical default. </p>



<p>As a result, given their critical role in facilitating trading and decentralized finance (<a href="https://crypto.news/learn/understanding-defi-and-its-uses/">DeFi</a>), any issues faced by stablecoins could reverberate throughout the entire crypto ecosystem.</p>



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Stablecoins’ future becomes uncertain amid crypto slump

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